An interesting dilemma arose around some new sales rep commission agreements being prepared for a client. It involved long-term commission payments by the client to the reps for making introductions and perhaps helping with the initial sale. The discussion came around to when should that stream of commissions cease in case the rep’s agreement was terminated?
The instinctive response is that the payments stop when the agreement terminates. Thinking about it, though, that is not very fair.
The rep completed his/her responsibilities up front, before the customer actually became a customer. My client was willing to pay the commissions forever when the agreement was in place. Should the termination of the agreement stop the payment stream? The answer, of course, lies in why the agreement was terminated. We had to consider a wide range of possibilities:
- The client terminates for convenience
- The rep terminates for convenience
- The company breaches the agreement and fails to cure the breach
- The rep breaches the agreement, but not by doing anything that might damage the client or the customer. For example, the rep consistently fails to submit the form to “register” its prospects
- The rep breaches the agreement in a really material way, by violating the confidentiality provisions, the customer’s security regulations, or the customer’s basic rules such as the prohibitions against sexual harassment.
My client chose a very lenient approach. These particular “reps” were senior business people with valuable high-level connections, and they could help the client in many ways. Bringing in key accounts was just one of them. Also, the reps were signing up for non-compete clauses that would limit the markets they could work in for a period of time. My client was willing to give a lot to get these people on board, so its decision may not be what the reader would have done.
In the end, this particular client decided to stop the revenue stream only in the extreme case described in the last bullet. There were very few things the reps could do to breach other than those items, anyway. The big “giveaway” was in case the rep terminated for convenience, but the client was willing to work that way – the rep would still have earned the commissions and the client would continue to collect the revenue.
Comments are welcome.